Sears Noose Tightens As CIT Leaves Company Cold With No Vendor Financing

Tyler Durden's picture


Two weeks ago, when we first announced the catastrophic earnings preannouncement by Sears we noted that we were stunned "that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3..." Subsequently, when the company was downgraded to triple hooks S&P we said that "Accounts Receivable about to become one big perpetition charge off", the implication naturally being that the company is about to lose its vendor financing - which for retailers is the last step before outright default. Sure enough, the WSJ reports that this is precisely what happened. "Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company. Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors, saying the payables the firm had financed amounted to only about 5% of the retailer's inventory." Basically this means that the company Net Working Capital is about to go poof, as there will be nobody to finance the Receivable-Payable spread, SHLD will have to demand COD or even cash upfront, vendors will balk and switch to other, and slowly Sears will suffer an inventory liquidation stranglehold which will culminate with the company's bankruptcy unless Lampert provides a massive liquidity injection, which also however will have a brief impact, as the company is now perceived by all as Dead Man Walking. In other news, we are hearing that several bankruptcy advisors are already preparing the K-Mart pre-pack/freefall pitchbooks... all over again.


"We disagree with their action, in fact we'd point out that other factors are approving shipments to Sears Holdings," company spokesman Chris Brathwaite said in a statement.


Nonetheless, the decision highlights growing anxiety among companies doing business with the amalgam of Sears and Kmart stores created by hedge fund financier Edward S. Lampert, which announced that it would be closing up to 120 stores and taking up to $2.4 billion in quarterly charges last month after reporting weak holiday sales.


Representatives for CIT, which sought bankruptcy protection in 2009 amid the height of retailing's struggles during the downturn and emerged from restructuring later that same year, declined to discuss the Sears situation. "We don't comment on specific customers," said spokesman Curt Ritter. Its decision was initially reported by Bloomberg.


Sears has been seeking to reassure investors and business partners in recent days that it remains financially sound. All three major credit-rating firms have downgraded its debt, citing the deterioration of its earnings over the past 12 months, including a $421 million loss last quarter.


Mr. Brathwaite said Wednesday that the company had about $4.2 billion in liquidity at the end of December, including cash balances of about $900 million and $3.3 billion in prearranged credit facilities.

We give sears a few months at best before the liquidity crunch forces it to line up in front of that infamous building at 1 Bowling Green.

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Thu, 01/12/2012 - 09:11 | 2057814 cossack55
cossack55's picture

It seems we have discovered the "softer" side of Sears.

Thu, 01/12/2012 - 09:26 | 2057858 slaughterer
slaughterer's picture

Bruce Berkowitz claimed in the past that Sears' CRE holdings, upon liquidation, have enormous value.  

Thu, 01/12/2012 - 09:33 | 2057879 trav7777
trav7777's picture

that's too bad...another venerable institution sent to shit in favor of garbage like WMT.  Sears just wasn't run well despite that they had some really honestly very good products.

Tried to occasionally check them and Kmart out but the feel of the place was of a terminal patient waiting to be put out of their misery

Thu, 01/12/2012 - 09:35 | 2057887 economics1996
economics1996's picture

Sears has the best tools on the market.

Thu, 01/12/2012 - 09:47 | 2057930 tarsubil
tarsubil's picture

My father in law tried to get an old snapon socket wrench replaced and was denied. Frickin' snapon. Craftsman replacement is still very very easy and painless.

Thu, 01/12/2012 - 10:12 | 2058024 aerojet
aerojet's picture

Had.  Had the best tools on the market.  I went in there to try to get replacement garage door opener remote--they wanted $50 for the fucking thing!  Disgusting.  It's at most a $20 item, and is probably made in China for $3.

Thu, 01/12/2012 - 10:44 | 2058162 Don Birnam
Don Birnam's picture

Hold the phone --

CIT Group is the lender ? ( ! ) Put this withdrawal of credit in perspective, then; CIT itself hasn't a pot to piss in.

Thu, 01/12/2012 - 12:37 | 2058629 trav7777
trav7777's picture

CIT?  didn't THEY go BK like last year or something??  Who the fuck are they to be lending anyone anything?

Thu, 01/12/2012 - 11:33 | 2058356 prains
prains's picture

Sears has the best tools on the market.


not if you have to make a living eveyday using them, think again

Thu, 01/12/2012 - 10:23 | 2058071 Whoa Dammit
Whoa Dammit's picture

Trav said "Sears just wasn't run well despite that they had some really honestly very good products."

That is precisely the issue with Sears/K-Mart. Both brands suffered years ago when the economy was good, because people didn't want to appear to be "poor" by shopping there. But the way the economy has been since 2008, and the way it is going to be in the future, both brands would be doing gang buster business if someone with half a brain and a pittance of retail knowledge had bought them. What has happened to Sears/Kmart is a textbook example of the huge downside of vulture capitalism.

And for those who believe that the commercial real estate owned by Sears is of value, Bwhahaha!!! The FDIC isn't hiring CRE examiners nationwide for shits & giggles.

Thu, 01/12/2012 - 11:51 | 2058428 Ned Zeppelin
Ned Zeppelin's picture

Sears near us in suburban Philadelphia is a mall anchor and will be closed.  Good riddance, as it has been useless for years.  Another dinosaur bites the dust, although I agree about the tools. Prehaps the Sears Hardware line of stores will survive.  But the suburban mall based anchor will not.

All those who think the CRE holdings of Sears are worth alot of money are dreaming (my prediction).  The demise of this store in our local 70s style mall will be one of many coffin nails in the viability of that center, which I predict will revert to its former agricultural use in 10..9..8..

Thu, 01/12/2012 - 14:01 | 2058910 Rick Masters
Rick Masters's picture

So you think tha malls will go away? I think the space will just sit there forever, abandoned. (And that's on top of all the space already abandoned. Time to short SPG?) Also, thats a lot of space cause every mall in the Phill area has a Sears. I can't think of one that doesn't.

Thu, 01/12/2012 - 13:24 | 2058776 Elwood P Suggins
Elwood P Suggins's picture

K-Mart is nothing but a down scale Wal-Mart with higher prices.  Why would anyone shop there?

Thu, 01/12/2012 - 11:24 | 2058315 fx
fx's picture

Could it be that eddie lampert actually wanted to drive down the share price as he can buy back a boatload of stocks and bonds at really low prices now? Sears might well go bk but that doesn't mean that the shareholders /bondholders are bound to lose. heck, they could receive a helluva lot of money over the coming years from the liquidation of the company.

Thu, 01/12/2012 - 12:38 | 2058632 trav7777
trav7777's picture

he'll bk the company and wipe out all the other owners, then cash out by partsing out the company's brands

Thu, 01/12/2012 - 09:15 | 2057824 Antifaschistische
Antifaschistische's picture

Will any of the Craftsman tools or Husqvarna chainsaws be discounted further?    

Everything else they sell we can buy from other Chinese Distribution Outlets.

Thu, 01/12/2012 - 09:25 | 2057852 Alex Kintner
Alex Kintner's picture

Looks like I will out-live the lifetime warranty on my Craftsman tools.

Thu, 01/12/2012 - 09:32 | 2057877 kridkrid
kridkrid's picture

On a long enough timeline...

Thu, 01/12/2012 - 09:27 | 2057862 TheGreatOutdoors
TheGreatOutdoors's picture

Better restrict your purchases to Craftsman hand tools - even the power tools have taken a dive in quality.

And as to the Husqvarna saws... much of what you'll find at sears is only licensed to use the Husqvarna name. Best look for a Stihl.

Thu, 01/12/2012 - 10:02 | 2057980 HungrySeagull
HungrySeagull's picture

Stihl in the big model with large bar will cut up a 5 foot wide fallen tree.

The smaller saws like the ones from Lowes and HD are just crap. They simply burn up.

Don't forget a Peavy tool to move them big trees.

Thu, 01/12/2012 - 09:24 | 2057851 EscapeKey
EscapeKey's picture

It's a good thing neither can be considered negative for overall equity performance.

Thu, 01/12/2012 - 09:31 | 2057870 kridkrid
kridkrid's picture

I posted this yesterday in a random thread when someone referenced the Hostess bankruptcy... it's more appropriate here...

The game really was the same everywhere.  Money is cheap, why not finance ________________ (fill in the blank, be you a potential home owner or a CEO).  But the CEO's had no risk.  JP Morgan and Goldman Sachs puts together the financing, you buy some top line revenue growth, the bought and paid for analysts hail your growth, stock price goes up in the insane asylum called a market.  

Everything works just fine on the way up... but it all REQUIRES infinite growth.  Most people won't understand what's happening when the dominoes start to tumble.  As the largest American brands go under, all sorts of fingers will be pointed, but at the core is our monetary system that REQUIRES aggregate debt to expand.  The system is agnostic with respect to who takes on the debt... consumers via a housing bubble, corporations through leveraged buyouts or governments via some sort of Keynesian fantasy or via the MIC.

Thu, 01/12/2012 - 10:14 | 2058035 aerojet
aerojet's picture

You forgot the part where the execs raided the corporate coffers of all of these firms, leaving them vulnerable and exposed.

Thu, 01/12/2012 - 10:35 | 2058119 kridkrid
kridkrid's picture

Not completely... I did mention that they had no risk.  Why should they care if the raid the corporate coffers?  Everything is easier to understand when we recognize that finance capitalism is a breeding ground for psychopathology.  Our psychopaths are indoctrinated in our business programs and groomed through the ranks to insure a certain perspective when they assume the helm.  The degree to which this is orchestrated is open to debate, but the reality of our situation is not.  America is run by psychopaths.

Thu, 01/12/2012 - 14:03 | 2058921 Ruffcut
Ruffcut's picture

They are the product of their environment. They were perfectly sucked in. Paid big cash and able to break laws or ignore the truth, so now they are totally OWNED. Just go out and say, yes the system is corrupt and you will be hammered so hard your head will be blowing out thru your ass.

Honesty will be serverely punished, as corruption has proven to be richly rewarded.

Thu, 01/12/2012 - 11:18 | 2058287 aerojet
aerojet's picture

I don't think  the system is agnostic about debt at all--when we started to have deflation, the Fed/Treasury/Bush cabal immediately fired up the government debt machine, followed by Obama with the idiotic "putting Americans back to work" to spend it all.  I don't think it had anything near the same effect on the real economy as all the housing, auto, and credit card debt does.

Thu, 01/12/2012 - 11:36 | 2058368 kridkrid
kridkrid's picture

Agnostic about WHO takes on the debt.  You are absolutely right... when the private sector "tapped out" everything shifted to the public sector.  But the aggregate was able to grow.  Public, private, corporate and financial... between these four, debt expands or you have a deflationary depression.  We've been kicking the can for so long, that we are quite literally suspended in midair... like wile-e-coyete.

Thu, 01/12/2012 - 09:37 | 2057890 orangedrinkandchips
orangedrinkandchips's picture

deny, deny, deny....

Thu, 01/12/2012 - 09:38 | 2057897 LiquidityandLunacy
LiquidityandLunacy's picture

One big problem with this article is that it assumes vendors will just up and walk away from bringing their products to Sears. Most of the stuff Sears sells is bought and MADE for Sears by vendors for special pricing. This is NOT the end of the line for them because frankly, those vendors are facing shrinking orders. Retail at Sears isnt retail at JWN or AAPL, these people are affected by the depression and dont have credit cards with which to max out.


In closing, no, vendors will not go anywhere else because there really isnt anywhere else to go. Its not like JCP needs more inventory to sit on.

Thu, 01/12/2012 - 13:25 | 2058783 SilverDOG
SilverDOG's picture



This is the collapse of the country, as a whole. Consumed voraciously, from the inside out. Goodbye supply, goodbye.

Thu, 01/12/2012 - 09:41 | 2057910 ZeroPoint
ZeroPoint's picture

Good bye Sears. It's trajic to see an American business  dynasty end, but I won't miss having to wait 45 minutes for merchandise pick up.



Thu, 01/12/2012 - 09:43 | 2057916 Saxxon
Saxxon's picture

I dunno . . . our little law firm fucked everyone in open view and we still get vendors eager to take the work.  Then they get fucked (wait 12-18 months to get paid depending on how important the Managing Partner thinks they are) but if they don't like it they can stop taking the work.  Most hang around.

A pathetic state of affairs.

Thu, 01/12/2012 - 11:58 | 2058449 Ned Zeppelin
Ned Zeppelin's picture

Get a job elsewhere - not every law firm is a hostel for psychos.

Thu, 01/12/2012 - 09:43 | 2057917 Muddy1
Muddy1's picture

no sears + no catalog = no paper for the outhouse

Thu, 01/12/2012 - 10:22 | 2058068 LFMayor
LFMayor's picture

Translastion:  No Pron for the Amish, the bra pages were the last to be torn out and used as asswipes.

Thu, 01/12/2012 - 09:45 | 2057922 HD
HD's picture

Sad really. Sold appliances for Sears more than 20 odd years ago - and even back then the bloom was well off the rose. I know nothing of the company now - but back then they owned a huge chunk of real estate via the legacy retail stores (not connected to a mall).

I remember working with some old timers that had put in 40+ years who had grandfathered in health and retirement benefits that set them up for life. A few years later Sears screwed them over and cut the pension payouts to the bone.

Thu, 01/12/2012 - 09:52 | 2057946 The Axe
The Axe's picture

Tyler, it seems that Eddy lampert used Sears cash to purchase 4.8 million shares over the last few days, from ESL investors which Eddy Lambert seems to be a smells.....I think.....

Thu, 01/12/2012 - 10:03 | 2057985 HungrySeagull
HungrySeagull's picture


Just another casulty of our "I want cash now" world.


Credit is bull, Cash talks.

Thu, 01/12/2012 - 10:13 | 2058027 tmftdoyle
tmftdoyle's picture

I expect to see bruce berkowitz on cnbc this morning, just as in early 2010, to spin his tale about asset values and just think if they turn the retailer around to get another short-squeeze going. Only this time my guess is that he fails! 

Thu, 01/12/2012 - 10:23 | 2058069 Chappy
Chappy's picture

Seriously though, if they have 900M in cash, how long can they string along before they declare bankrupcy?  I see this as a great oppurtunity to buy some puts but it's all about timing of course.  Can they limp along another few quarters?

Thu, 01/12/2012 - 10:23 | 2058070 Chappy
Chappy's picture

Seriously though, if they have 900M in cash, how long can they string along before they declare bankrupcy?  I see this as a great oppurtunity to buy some puts but it's all about timing of course.  Can they limp along another few quarters?

Thu, 01/12/2012 - 10:36 | 2058122 LongSoupLine
LongSoupLine's picture


We need William Banzai to photoshop up a Craftsman Hedgefund tool of some mind wanders.

Sears..."Where America Flops."

Thu, 01/12/2012 - 10:51 | 2058191 Shizzmoney
Shizzmoney's picture

You guys would cring at how much stuff is bought in China, and the margin for what it is sold for in stores like Sears and Kohl's.  Even after these places offer "sales", still huge margins.

First Friendly's.  Then Hostess (Twinkie Maker).  Kodak+Sears is next on the donkdown train, IMO.

Thu, 01/12/2012 - 13:41 | 2058828 RKDS
RKDS's picture

I simply cannot fathom how greedy or stupid executives must be to drive a company to bankruptcy on 1000%+ margins.

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